8 Reasons $2 Gas is Gone for Good
Sky-high gas prices have many armchair economists thinking about the bubbles of yore: Tulips, dot-coms with no revenue model, and gated communities in suburban Phoenix. While the “what comes up must come down” rule usually applies, there’s no guarantee we’ll ever see $3 gas again—much less $2. Here’s why:
8. Peak production is a matter of “when,” not “if.” Though there is a hot debate among energy analysts over how much higher daily crude production can go, it’s almost universally accepted that we’re closing in on the end of limitless new oil discoveries. 1978 was the last year that more oil was discovered than was used, meaning that available oil we know about at a any given time has been dropping annually.
7. Speculation. After the collapse of the housing market triggered inflationary fears, investment banks, hedge funds, and commodities traders began looking to oil trading as a hedge against inflation. Sure, the dramatic increase in trading volume for oil futures has added demand to market, but there’s little reason to expect it to cool down before demand outpaces supply. Goldman Sachs says $200 barrels are on their way, and based on the way energy traders have been acting recently, it would appear that many others are in agreement.
6. The falling dollar. Since oil is traded in dollars, inflation for us means that many poorer countries can effectively buy oil cheaper. That’s good news for developing economies like China and India whose growth has spurred an explosion of new oil demand. It’s bad news for the United States, Europe, and carbon emissions.
5. Alternatives are pricey. Ethanol, oil sands, and natural gas liquids are all alternatives to light sweet crude that can be refined into gasoline. The problem is that these fuels take an incredible amount energy to extract and refine, making them viable supplements to crude when oil prices are high, but ultimately much more expensive.
4. Subsidized oil. Some countries help to subsidize the price of oil to allow their consumers cheaper access. So long as the price in these countries is controlled, demand will stay the same.
3. A significant dent in demand isn’t on the horizon. Hybrid cars and renewable energies offer a peak into the crystal ball about our transportation and energy futures, but we’re a long way away from a time when they’re the rule and not the exception. Globally, the cost of these new technologies is still prohibitively expensive, and while rising fuel costs could send this transition into overdrive, current projections aren’t very encouraging.
2. Diminishing quality of oil resources. As oil fields mature, their resources drop in purity and become more expensive to extract.
1. Not much incentive for oil companies to provide relief. Sure, profit margins in production and refining shrink as businesses compete to offer a cheaper product to weary consumers, but does that mean companies are making less money? Not when prices are this high. Look for the big oil companies to continue reporting record earnings as prices and demand continue to climb.
via HybridCars